Wondering if, when, and how you’ll ever be afford to retire? Good news. Successful retirement planning isn't really about how much money you make as it is your financial priorities–especially in your younger years.
Here's what some retirement experts have to say about what really determines your ability to retire early.
#1. Know exactly where you stand.
A recent HSBC survey revealed that 65% of retirees did not realize they were unprepared for retirement until they had already retired. Knowing the retirement number you’re working towards is especially pressing for those of us who are 49 years old and younger.
Melinda Kibler, certified financial planner with Palisades Hudson Financial Group’s Fort Lauderdale, Florida, office explains that unlike Baby Boomers, most workers in the Gen X and younger demographics started their careers in a time when paid pensions where transitioned to employer-sponsored 401(k) plans. That means there's little to no “safety” net from your employer in terms of how well prepared you are for retirement.
The first step to working to a retirement goal is knowing what you need to save. For an easy retirement calculation formula, experts at U.S. News & World Report suggest multiplying your income by 20. The number you see is what you should strive to reach by whenever you hope to retire.
While there are all kinds of variables the formula doesn't consider, it’s a benchmark to gauge your savings progress. That's what matters.
#2. Include retirement contributions in your budget.
Retirement saving gets put on the burner by 85% of Americans, according to the HSBC survey. But contributing early, and consistently is actually more important than how much you contribute, due to the benefit of time, and compounding interest.
The “max” contribution limit for workplace-sponsored 401(k) plans in 2015 is $18,000. To reach that max, you’ll have to contribute about $750 a pay period (if you’re paid biweekly).
It's no small contribution, and it may very well mean you forego a few other items in your budget. If you really can’t afford the max, figure out what you can afford, and contribute habitually.
#3. Aim to eliminate your living costs.
2013’s Moss National Money and Happiness Study revealed that the happiest retirees do not have a mortgage, or are very close to having it paid off by the time they retire.
Instead of committing to a 30-year fixed mortgage, opt for a 15-year mortgage, and a 20% down payment. Your rates will be lower, and you’ll avoid private mortgage insurance (PMI) entirely. Ideally, you’ll own the home outright well before you retire.
#4. Be strategic about your borrowing.
HSBC’s survey revealed that nearly 50% of Americans aren’t prepared to retire because of mortgage and other debts. Take advantage of low interest loans and balance transfer offers if they mean you’ll ultimately pay your debt off sooner, and at a lower cost.
Additionally, be smart about how can maximize your assets and returns. Today’s lending rates remain near historic lows. If you can borrow for less than what you stand to earn on your money, you’ve just beefed up the value of your cash on hand.
#5. Don’t fear the market.
Successful retirees understand that returns require some amount of calculated risk, and a long-term strategy. Kibler explains that being too conservative is as risky as being too aggressive. Safe investments don’t give you much in return, and you lose a precious asset: Time.
She recommends you put your “eggs” in many baskets, including U.S. large-cap fund, a U.S. small-cap fund, and an international fund.
The key to having the retirement that you want is proper planning and taking the right steps in order to put that plan into action. It is scary thought to think how many retirees don't know when or how much they need to retire.
Something that you might want to consider is setting up a self-directed IRA, so that you can diversify all of your current and future assets that you have. Learn more about some of the best custodians to do this.
Image Credit: Howie Woo